From Russ Fox, E.A., of Clayton Financial and Tax of Las Vegas, Nevada. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.

1700 Miles and a 7% Difference

One of the most difficult things to explain to a non-tax practitioner is the tax concept of domicile. For most individuals, your domicile is your residence. I reside in Las Vegas, Nevada. It’s my only home. In my case, my domicile and residence are identical (as is the case for most people).

However, some individuals have multiple residences. Take Ken Mauer. Mr. Mauer has a home in Afton, Minnesota (just east of the Twin Cities). He also has a home in Fort Meyers, Florida. They’re both residences, so which is his domicile? If Mr. Mauer’s had residences in Nevada and Florida, this wouldn’t be a big issue (neither state has a state income tax). However, Minnesota has a state income tax so being considered a Florida resident would save Mr. Mauer thousands of dollars in state income tax.

Shock of shocks, Mr. Mauer declare himself a Florida resident and didn’t file Minnesota tax returns for 2003 or 2004. After the Minnesota Department of Revenue objected, he filed a part-year 2003 return. Mr. Mauer was audited by the Department of Revenue and lost. He appealed the decision to the Minnesota Tax Court and lost. He then appealed to the Minnesota Supreme Court. That court upheld the previous decision.

I’m not going to into Minnesota’s 26-factor test, or the factors that led to Mr. Mauer being considered a resident of the Gopher State rather than the Sunshine State. One factor, though, is key: Mr. Mauer spent more time in Minnesota than Florida. Few tax agencies will consider you a resident of the other state if you continue to spend a lot of time in their state. Suffice to say, it you are in such a situation it’s best to cut all ties to your old state…or at least spend 183 days in your new home. In Mr. Mauer’s case, he’s liable for Minnesota state income tax for 2003 and 2004.